Home Federal Bancorp, Inc. of Louisiana — Form 10-Q
Reporting period: Three months ended September 30, 2021, the company’s first fiscal quarter of fiscal 2022. The filing’s financial statements are unaudited and consolidate the company and Home Federal Bank, which operates in northwest Louisiana.
Financial performance and position
| Metric | Quarter ended Sept. 30, 2021 | Prior-year quarter / comparison |
|---|---|---|
| Net interest income | $4.224 million | $3.987 million; up 5.9% |
| Net interest margin | 3.16% | 3.21% |
| Net income | $1.353 million | $1.247 million; up 8.5% |
| Basic / diluted EPS | $0.42 / $0.38 | $0.38 / $0.37, respectively; split-adjusted |
| Dividends declared per share | $0.10 | $0.08 |
| Operating cash flow | $6.049 million | $(10.730) million |
| Cash and cash equivalents | $101.3 million | Down $3.1 million from June 30, 2021 |
| Total assets | $566.8 million | Up $1.1 million from June 30, 2021 |
| Total deposits | $507.6 million | Up $1.0 million from June 30, 2021 |
| Stockholders’ equity | $53.7 million | Up $1.0 million from June 30, 2021 |
Interest income was $4.774 million, down 4.2% year over year, while interest expense fell 44.8% to $550,000. The average interest-rate spread increased to 2.98% from 2.92%, but net interest margin declined. Non-interest income was $1.016 million, down 40.4%, chiefly because gains on loan sales fell to $709,000 from $1.411 million. Non-interest expense rose 3.3% to $3.535 million. No loan-loss provision was recorded, compared with $700,000 a year earlier.
Net loans receivable were $339.4 million at September 30, up $3.0 million from June 30. The allowance for loan losses was $4.127 million, or 1.20% of total loans. Total borrowings were approximately $2.0 million, including $859,000 of FHLB advances and $1.1 million of other borrowings. The Bank reported regulatory capital ratios of 9.57% tangible equity, 15.97% common equity Tier 1, 9.57% core capital, and 17.19% total risk-based capital; management said these exceeded minimum requirements.
Material changes and management commentary
- Quarterly net income improved mainly because of lower funding costs and no loan-loss provision, partly offset by reduced loan-sale gains and higher operating expenses.
- Investment securities increased $4.7 million to $88.9 million, reflecting $9.9 million of held-to-maturity purchases, partly offset by mortgage-backed securities principal repayments.
- Deposits were nearly flat overall, but non-interest-bearing deposits and savings increased while certificates of deposit declined. Brokered deposits were $9.1 million.
- Premises and equipment increased $896,000, primarily due to construction of a new Huntington branch.
- Non-performing assets were $1.4 million, unchanged from June 30, 2021, comprising $976,000 of non-performing loans and $383,000 of foreclosed assets. The filing identifies multiple commercial real estate loans to one borrower among the non-performing assets.
- Management cited economic and credit-quality improvement in explaining the absence of a current-quarter provision. It provided no numerical earnings or growth guidance and cautioned that quarterly results are not necessarily indicative of full-year results.
Liquidity, risks, and contingencies
The Bank reported $34.5 million on deposit with the FHLB and $178.9 million of additional FHLB borrowing capacity. It also had $53.0 million of loan-origination commitments, $9.9 million of unused credit-line commitments, and $73.8 million of certificates of deposit maturing within one year. Management expects a significant portion of maturing deposits to remain, but gave no assurance and warned that renewal costs could rise in a higher-rate environment. The company reported no SEC-defined off-balance-sheet arrangements and no material pending legal proceedings.
Risks highlighted include local economic conditions, COVID-19 effects, interest-rate and deposit-flow changes, credit quality, real-estate values, geographic concentration, and adequacy of loan-loss reserves. Adoption of the expected-credit-loss standard (CECL) is scheduled for fiscal years beginning after December 15, 2022; the company said the eventual impact was not yet known and could be material. Management stated that no subsequent events requiring disclosure or having an adverse financial-statement impact occurred through issuance.
Important facts for investors to verify
- Confirm the period: this is the quarter ended September 30, 2021 (fiscal Q1 2022), notwithstanding the request metadata’s “2021 Q1” label.
- Track whether loan-sale gains and mortgage-origination activity continue to decline, and whether net interest margin stabilizes.
- Review subsequent credit trends, especially the non-performing commercial real estate exposure involving one borrower and the $1.20% allowance-to-loans ratio.
- Assess deposit retention and funding costs as $73.8 million of certificates mature within a year.
- Monitor CECL implementation and its eventual effect on reserves, earnings, and capital.